Why FAANG companies won't bite into digital advice

Fears of large consumer tech companies’ disruptive potential in the financial-advice sector might be overblown

Why FAANG companies won't bite into digital advice

In a 2017 global survey, global consulting firm CapGemini found that more than 50% of high-net-worth individuals (HNWIs) are open to using technology firms like Facebook, Google and Amazon for wealth-management services. The same survey reported more than three quarters of wealth-management firms see a better-than-even chance of so-called BigTech firms encroaching into — and disrupting — the space.

The fear is understandable: aside from their popularity and reach, FAANG companies have data from millions of users that could be migrated into an online investment platform. But a new report from global research firm Cerulli Associates suggests that it might not be so easy for these firms to throw their hats into the robo-advice ring.

“Prospective digital platform investors may not want or need the quarterly face-to-face portfolio reviews expected in previous iterations of traditional advisory practices, but they still largely prefer the empathy and trust that comes with personal interaction,” the report said.

Speaking to WealthManagement.com, a representative from Cerulli Associates said digital advice providers that want to scale up that aspect of the business find it difficult to find enough certified financial planners.

“Trying to get them on the scale you would need to make an impact at an Amazon or an Apple would just be insane,” said Scott Smith, director at Cerulli.

The level of quality control needed would also be beyond the traditional customer-service roles that these companies fulfill. “There needs to be a level of sophistication and familiarity that I would think would be tough to scale into the thousands for a firm that’s starting from scratch,” Smith said.

The initial takeoff of the robo-advice industry was due to the rise of self-directed investing, with some digital investing platforms targeting millennials by promising them full control over their investment decisions. But users will increasingly expect someone to validate their opinions as they accumulate assets.

BigTech firms looking to enter the space may also find that the game isn’t worth the candle. In contrast to CapGemini’s survey of HNWIs late last year, Cerulli’s report found that only 12% of all households are current or likely users of robo advisors.

Operational and reputational risks create another huge potential wrinkle. “You look at something like Cambridge Analytica and Facebook—that goes sideways and they’re taking a beating in the markets and their reputation,” Smith said. “You get involved with people’s money and go a little outside the lines, and you give an opportunity for getting criticized for just about everything.”


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